Medicare PPOs and Managed Care

It appears to be a good time to review some of the fundamental principles of managed care. A recent caption read “PPOs will halt the slide in Medicare managed care.” More than 15 years ago, managed care was defined by core principles that included negotiated, provider reimbursement rates through preferred provider organizations (PPOs) risk-contracting between health plans and providers, and increased accountability from determination of medical necessity and appropriateness through operation of utilization management programs. By the end of the 1980s, managed care was defined by at least one of 10 fundamental components that included prospective pricing, usual, customary and reasonable price determinations, service bundling, peer review, mandatory use review, benefit redesign, capitation payments, channeling, quality criteria, or health promotion. The Medicare PPO demonstration program that began January 1, 2003, modified, but did not change, the managed care features of the Medicare+Choice program. In fact, the Medicare+Choice PPO option in 2003 is not new at all. PPOs have been eligible to participate in Medicare+Choice since its inception, but only 2 PPOs had participated in Medicare+ Choice prior to the program change in 2003 that pays participating PPOs the greater of the county-specific premium amount or 99% of the national per-patient average annual payment amount in fee-for-service Medicare. The media attention to the Medicare+Choice PPO option may overstate the potential since, ironically, anti-trust enforcement from the federal government makes it difficult for physicians and other providers to form collective units to contract with Medicare PPO sponsors. Nevertheless, Medicare+Choice was not abandoning managed care in 2003 but, in fact, retained all of the former features of Medicare+Choice and all of the features that were first used to describe managed care 15 years ago. For Medicare members, the “new” feature in Medicare+Choice in 2003 allowed the use of providers outside the designated network, but at a higher out-of-pocket cost. In this way, Medicare+Choice resembles most employer-sponsored health plans that had years earlier adopted tiered, point-of-care, cost-share features to permit beneficiaries more choices in providers and services.


■■ Burden of Prescription Drug Costs in the United States
What is the true "burden" of prescription drug costs in the United States? Talk to a cab driver without insurance, and prescription drug costs are expensive and even unaffordable. Talk to the person who builds the cab, and prescription costs in the United States are not a problem. One person pays $3 or more per day to lower serum cholesterol, and the other pays less than 10 cents per day for the same drug.
The cab driver pays for the entire cost of the prescription drug at the point of service. The union worker who builds the taxi cab pays a fraction of the cost of the prescription drug at point of service, often less than 10 percent of a negotiated, contract price of the drug. This copayment arrangement for the insured, union worker reduces the personal burden of prescription drug costs and can "insulate" the worker from true prescription drug costs.
The burden of prescription drug costs can be more acute for the elderly, who on average use 3 times the number of prescriptions per month compared to persons younger than 65 years. 7 Yet, a remarkable 17% of Medicare beneficiaries had no ($0) spending on prescription drugs in CY 2001. 8 Spending of $1,000 or more was found among 28% of Medicare beneficiaries and accounted for 76% of total expenditures for prescription drugs for this population.
Survey data from 10,927 nonstitutionalized seniors in 8 geographically diverse states in 2001 showed that 35% of seniors had drug coverage under a Medigap policy, 25% of seniors were enrolled in state pharmacy assistance programs, and 19% of seniors in Medicare health maintenance organizations (HMOs) spent at least $100 per month ($1,200 per year) on prescriptions in 2001. 9 Medicare HMOs were important sources of drug coverage for seniors in California (30%) and Colorado (24%) but were less important in other states, ranging from a low of 7% in Illinois to 14% in Pennsylvania. Unfortunately, Medicare+Choice plans became unavailable to about one third of all Medicare+Choice members, about 2.5 million people, between 1998 and 2002, 10 and access to zero-dollar premium Medicare+Choice plans fell from 61% in 1999 to 53% in 2000 to 39% in 2001 and to 32% in 2002. 11 Access to any Medicare+Choice plan with drug coverage fell from 65% of the entire U.S. Medicare population in 1999 to 50% in 2002. This report from the Centers for Medicare and Medicaid Services (CMS) also found that the average monthly value of cost sharing for Medicare-covered services increased by 79% from $14.88 per enrollee per month in 2001 to $26.60 in 2002.
In a previous issue of the Journal, Cox and Henderson found that Medicare+Choice members with an annual drug benefit maximum (dollar limit) relied on prescription drug samples to mitigate the financial burden of prescription drug needs. 12 This finding highlighted the controversy surrounding this potentially self-defeating behavior since drug samples in physician offices are generally higher-cost drugs without generic equivalents. The use of drug samples might contribute to complacency among some physicians rather than encouraging them to select lower-cost therapeutic alternatives for these patients that would truly reduce the financial burden of prescription drugs for the elderly. In this issue of the Journal, McKercher, Taylor, Lee, Chao, and Kumar found that prescription drugs in elderly families accounted for approximately twice the proportion of total out-of-pocket medical care burden compared to nonelderly families, 45.6% versus 23.7%, respectively. The higher proportion of total medical care burden and total economic burden attributable to prescription drugs in the elderly was traced to larger prescription quantities, price, and utilization but not more expensive drugs. 13 This finding may be explained, in part, by the higher proportion of total prescription drug spending

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www.amcp.org Vol. 9, No. 1 January/February 2003 JMCP Journal of Managed Care Pharmacy 91